Investors warned of Initial Coin Offerings’ risks

The amount of funds raised through cryptocurrencies is 30 times higher in 2017 than in 2016. This evolution did not escape ESMA’s attention, which is now warning investors of the risk of losing ‘all of their invested capital’ when investing in Initial Coin Offerings (ICOs).

ESMA warns that ICOs are ‘very risky and highly speculative investments’, because the ‘coin or token is typically extremely volatile and investors may not be able to redeem them for a prolonged period’.

In addition, since cryptocurrencies[1] do not qualify as financial instruments, ICOs escape EU legislation applicable to financial trading (e.g. the Prospectus Directive, the MiFID, the AIFMD or the Fourth Anti-Money Laundering Directive)[2]. Therefore, ESMA draws the attention to the fact that investors would not benefit from protection under EU Law and their savings might be used in money-laundering activities.

On the other hand, ESMA warns firms who launch ICO campaigns to pay close attention to the applicable law and to make sure that they comply with the requirements in force.